Baroness Vadera, the small-business minister, has defended the Enterprise Finance Guarantee scheme, saying it is on target to disburse the £1.3 billion of assistance pledged by the government within the coming year.

She told The Sunday Times: “The value of loan applications has been growing all the time, with £30m of eligible loans in the last week alone. This shows the scheme is now on track, lenders are offering it, and eligible businesses are seeing an improvement in their ability to access credit.”

She said the scheme, launched nine weeks ago, had so far received eligible applications totalling £115m and that applications were running at £30m a week compared with £5m when it started. Of those about 85% would typically be converted into actual loans.

Vadera said the scheme was now being offered by 19 lenders in Britain compared with eight when the scheme was launched.

The Enterprise Finance Guarantee scheme was set up as part of a package of funding measures to help viable small businesses facing temporary cash-flow difficulties – for example, due to delayed payments from debtors. Loans made under the scheme are 75% guaranteed by the government and are available to firms with a turnover of up to £25m. The loans, which are made through high-street banks, can vary in size from £1,000 to £1m over a period of up to 10 years.

The Sunday Times has received dozens of e-mails in the past few weeks from smallbusiness owners who are furious about the way the scheme is being administered by the banks.

Some bank managers have been reluctant to provide loans under the scheme; some have denied all knowledge that it exists; and others have demanded cripplingly high levels of security and personal guarantees before they are prepared to lend.

Vadera acknowledged that it had taken some time to become established as awareness by banks and customers had to be built up, and said her department had been monitoring the provision of the scheme very closely. As a result of feedback from small firms, Vadera has now asked all the banks offering the scheme to set up a dedicated phone line for smallbusiness finance and put details on their websites so that customers can get more information about the banks’ provision of the scheme.

She has also put a clarification notice on her department’s web-site confirming that under the scheme lenders are not allowed to ask for someone’s primary home to be used as security for the loan.

Vadera said small businesses that had complained about the scheme had failed to understand what it was about: “As with all lending, it has to be done responsi-bly and this is even more important when taxpayers’ money is involved. The taxpayer cannot take the risk that a business person or entrepreneur does not want to take himself.”

She stressed that the scheme was not a substitute for commercial lending and was simply a way of enabling the banks to lend to viable businesses that they would otherwise not have been able to help. Vadera cautioned, however, that the Enterprise Finance Guarantee scheme was not designed to help every single small business facing cash-flow problems.

“This scheme is targeted help for viable firms, but at the margin of commercial lending, so it is not appropriate for all firms. We consulted with all the relevant parties before the scheme was launched to ensure its effectiveness for business and the economy,” she said.

Vadera said it was right that small businesses seeking to borrow money through the scheme should have to provide personal guarantees of up to 100%, something that smallbusiness organisations strongly object to. “As in normal lending situations, the providing of personal guarantees is something that can be requested by lenders if deemed necessary but they cannot ask for homes as new security,” she said.

She pointed out that a third of small businesses borrowing under the scheme so far had nothing that could be used as security in their business, while two-thirds had insufficient security.

Vadera also said that it was perfectly right and proper that a bank should have different lending criteria for different customers, saying that the banks had to carry out their own risk assessment and lend accordingly.

The Enterprise Finance Guarantee scheme is part of a package of financial help from the government. Vadera said the government had negotiated a legally binding lending commitment from Royal Bank of Scotland and Lloyds Banking Group in recent weeks, which had meant that more than £6 billion of entirely new lending to small businesses had been created. She hoped that the other big banks would soon follow suit with a similar pledge.

E-mail us at smallbusiness@sunday-times.co.uk